Skip to main content

Building personal assets beyond business

Raju Krishnan, 42, has worked hard to grow his catering business in the last seven years. His company's balance sheet speaks volumes about the growth and success, he has achieved, in his business. However, Krishnan is not really spreading his risks since his personal financial planning overlaps financial plans for his business.

Individuals like Krishnan consider their business and its assets as their only investments. Their business plan is the same as their financial plan. Their monthly credit card bills, utility bills, vacations and most categories of expenses are met from their business accounts. The latter is treated at par with a bank ATM. They equate business growth with their personal assets or wealth.

But such an approach can have serious repercussions. It is imperative to have a clear demarcation between the business capital and the personal balance sheet. With the business environment subject to rapid innovation, it has become necessary for owners to maintain their own balance sheets, in addition to their business one. Growth in personal net worth is equally important to growth in business.

CHALLENGES

Every growing business poses some new needs, which can be perceived as a challenge for the owner's personal growth. Some of these include:

Increasing responsibilities might make the owner integrate new partners. That involves sharing of profits and sharing the business assets and growth.

Relying purely on one's business to satisfy personal goals could lead to an imbalance in financial life. Diversification into financial instruments would not only help in increasing the owner's net worth but also help in spreading the risk. Every business will have its own high-normal-sub-normal growth periods. Re-investing all the profits of the business back into it could keep the capital as well as the profits earned on it at the same risk. Diversifying the returns from a business into other investment avenues will be helpful at all times, especially in case of a slump in the business.

Every business would certainly face cash crunches. These events can easily coincide with emergencies in the owner's personal life. At such times, it would definitely help if the owner has an emergency fund in his personal name to avoid a double-whammy on the personal and professional front.

HOW TO STREAMLINE

It is often argued that financial planning and discipline in investments is simpler in the case of salaried people, who have a fixed take-home pay. It need not be so. If every businessman adopts at least three of the five strategies listed below, achieving a near-perfect balance between business and personal finance growth would be possible:

Have a plan. It is important for a businessman to chalk down goals and objectives for personal life, the same way as for the business milestones. Once done, this financial plan would chalk out the road map, highlighting the gap between the resources available and required. The plan will have to devote special attention to the skewed cash flow pattern that may be possible in such cases.

Based on the above plan, the businessman and the planner should chalk out the corpus required for the different objectives and set a disciplined savings pattern for it. It is possible that some savings could be made on a monthly basis and some quarterly or half-yearly, depending upon the cash flow pattern. Having set this pattern, it will prevent the surplus cash generated from the business to be ploughed back to the business.

It is extremely important to set aside two emergency funds by the individual -- one for the personal emergencies and one for the business purpose. This step provides the businessman with a much-needed cushion of having ready access to funds for the business in case of certain events not going in his favour. This measure could also help the owner from taking up expensive short-term borrowing (both formal and informal).

As with the business, the individual has to make it a practice to draw out a personal balance sheet, tracking the inflow and outflow of funds during a particular year and summarising the networth. At the end of every year, the balance sheet and networth statement could help in tracking the progress as compared to the original plan.

The owner could look forward to the stake in his business as his contribution for his retirement. Being a very long-term goal, the investments to be allocated for this objective could be the highest risk bearing instrument. So, an owner's capital invested in business would be easily one of the best of investments for retirement.
 
A truly successful businessman would be the one who is not only successful in his business but also has been able to build his own financial networth with equal care.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

 

---------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver Mutual  Funds  Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

 

Popular posts from this blog

Mutual Fund Review: Taurus Tax Shield

    Taurus Tax Shield has seen a turnaround in performance since 2007, but still remains a volatile offering… The fund has seen a turnaround in its performance since 2007 and has delivered impressively during market rallies since then. The portfolio is also more diversified. It contained its downfall to an average level in 2008 but is still one of the most volatile offerings in this category. Bold investors can look at this fund.   Strategy The fund manager invests across the market capitalisation and sectors. The selection of stocks is made on the basis of long-term business prospects and value creation. Fund Insight Launched in March 1996, the fund was a laggard with just two annual outperformances. Concentrated stock bets and high exposure to mid and small caps led to it being hit harder during market downturns. The number of stocks in the portfolio never exceeded 20 and it was not rare to see the top 5 holdings account for around 60 per cent of the portfolio. After b...

Use Mutual Fund SWPs for getting fixed payments

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   Investors time withdrawals optimally to save on tax The systematic withdrawal plan, or SWP, could be called the lesser known cousin of the much talked about and publicised systematic investment plan (SIP). There's yet another cousin — the Systematic Transfer Plan ( STP ). In SIP, you invest a fixed sum of money at regular intervals (monthly/ quarterly) to buy some units of a mutual fund scheme. In SWP, as the name suggests, you do the opposite: You redeem some mutual fund units from your portfolio to get a fixed sum of money at regular intervals (monthly/quarterly/half year/yearly). In SIP, you get a higher numbers of units when the markets are down, and lesser in a buoyant market. In SWP, going by the product logic, you redeem higher number of units when the markets are do...

AXIS Long Term Equity Fund - The Best Tax Saver Fund for 2016

  AXIS Long Term Equity Fund - Invest Online   History:   The open ended mutual fund was launched on December 21 in the year 2009. It is benchmarked against BSE 200 and managed by the fund manager JINESH GOPANI. Initially the scheme was called as Axis tax saver fund but later it was renamed as Axis long term equity fund with effect from September 2, 2011. Nature of investment: As far as asset allocation is concerned, 97.52% of the stocks are equity and 0.02% is debt based. The primary focus of the fund is to invest in diversified equity stocks that have higher growth potential. Total asset size of the fund is in the tune of 4,996 CRORE as of June 30, 2015. Performance: The performance of the fund for one year, 3 years and 5 years are 23.6%, 29.9% and 19.1 respectively which are far greater than 6.4%, 14% and 5.6% benchmark figures. It has also preformed fairly well against SBI magnum Tax Gain (G) and HDFC tax saver (G). The growth comparison is enumerated below;                        ...

Health insurance guide - Part I

Insurance, by definition, is morbid. What if I die suddenly? What if my home caught fire? What if I had to undergo expensive medical treatment? What if something that I thought happened only to others befell me? Insurers, who work with large samples, calculate the probability of such an event and, hence, the possibility of them having to pay out a sum of money to mitigate, to the extent possible, the effects of that disaster. However, the possibility of you undergoing some kind of expensive medical treatment during your lifetime is far more likely than you dying suddenly or your house burning down. Given that costs at private healthcare facilities, where you are most likely to land up, is high, and, doubling every four years 10 months or so, the rest of your money life could easily go out of whack if you had to incur such expenses. Just 12 per cent of India's population is covered with some sort of health insurance. Pared to the bone, for a comparatively small price, health insu...

IDFC Classic Equity Fund

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   IDFC Classic Equity Fund IDFC Classic Equity is a large-cap equity fund which currently has assets under management worth Rs. 158.52 crore. It was launched in August 2005. The fund is benchmarked against the BSE-200 Index. Performance YTD 1-Year 3-Year 5-Year Since Inception IDFC Classic Equity 0.93 26.61 6.30 1.01 11.65 BSE 200 1.52 17.31 6.00 1.99 12.98 All figures in % as on January 31, 2013; Returns above one-year in CAGR terms ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now